Improved sentiment lifts South African bonds to top of the pile

A resurgent currency and the return of foreign investment have helped South African bonds to the top of the emerging market pile.

Rand-denominated government debt has returned 6.5% in dollar terms in July, the best performance out of 19 major emerging markets tracked by Bloomberg Barclays indexes. The average for developed nation peers was less than 0.1%.

That is quite a turnaround from the last quarter, when SA’s bonds bore the brunt of an emerging market sell-off, losing 17%, with only Argentina and Turkey doing worse.

Since then, global risk appetite has improved, while President Cyril Ramaphosa nailed down investment pledges totalling $35.5bn as he seeks to attract $100bn to boost the flagging economy. The rand and government bonds had been resilient due to improved sentiment on news around investment undertakings by Saudi Arabia, China and the United Arab Emirates, Zaakirah Ismail, a fixed-income specialist at Standard Bank Group, wrote in a client note. “The announcements have revived sentiment.”

That shows in foreign investor demand for the country’s bonds.

After a record sell-off spanning almost three months, nonresidents have been net buyers for the past three weeks.

Friday alone saw a net inflow of R2.4bn, the most in a day since March 13.

SA needs portfolio flows to help plug a current account deficit and support the rand, which has gained 4.2% in July.

Bloomberg